The use of technology is helping Affordable Housing Finance Companies to customize credit assessment models and optimise business processes, thereby reducing the time to market and helping to improve the customer experience, says Pavan K. Gupta, CEO, Muthoot Housing Finance Company Limited, in conversation with Elets News Network (ENN).
How is Muthoot Housing Finance Company Ltd.(MHFL) catering to the demands of customers who are not addressed by the formal banking sector?
Muthoot Housing Finance Company Ltd. (MHFL) caters to the housing finance needs of the common man who generally do not get home loans from banks and large HFCs. MHFL is a pure play affordable housing finance company giving a maximum home loan of Rs 25 lakhs to salaried and self-employed with formal or informal income sources. According to the Ministry of Housing, Urban Poverty Alleviation, the Economically Weaker Section (EWS) and Low-Income Group (LIG) segments account for 95 percent of the total housing shortage in India. MHFL customers primarily belong to the EWS and LIG segment and loans are given for the purchase of home, self-construction, extension and repair and renovation.
MHFL has developed expertise in understanding customer home loan needs and accessing their income from informal income sources. Evaluation of property from a legal and technical perspective, customer business and cash flows is done by in house team. This is done by MHFL team who visit customers’ business, residence and property being purchased.
The housing finance in India is booming. What is the reason behind it?
There is a huge shortage of housing in urban and rural India. In 2015, with a vision to provide a home to every Indian, the Government launched “Housing for All” by 2022 scheme. Under the Pradhan Mantri Awas Yojna (PMAY), the government plans to provide 20 million houses in urban areas and 30 million houses in the rural areas.
The government has implemented various initiatives to boost the demand for affordable housing like the reduction of Goods and Service Tax (GST) to 1 percent for affordable housing, infra status to affordable housing, tax holiday to affordable housing developers for five years, allowing external commercial borrowing for affordable housing, Credit Linked Subsidy Scheme (CLSS) subsidy in the urban areas and subsidy support for beneficiary lead construction. All these measures have led to huge demand and supply of affordable homes resulting in a boom in the housing finance market.
National Housing Bank (NHB) also issued around 38 new licences in the last three years to start Housing Finance Companies (HFCs) which primarily provide finance to customers in the EWS and LIG segment buying affordable homes.
What are your expectations with the Narendra Modi’s government for the growth of the affordable housing sector in India?
The Narendra Modi’s government has come up with several tax sops to boost the housing demand during the interim budget presented in February 2019. With him coming back to power, we expect the budget in July 2019 to be announced in favour of the housing sector in India.
Some of the expectations from the upcoming budget are:
- To open avenues to raise long term funds for HFC’s to reduce the asset liability mismatch
- Rationalisation of high registration cost and standardisation of property registration cost across India.
- Long term capital gain tax to be withdrawn, which will give much-needed boost to foreign investment
- Simplification of corporate tax code and rationalisation of GST rates
- Considering that inflation is under control prudent steps should be taken to promote consumption by rationalising direct tax and ensuring more disposable income in hands of consumer
- Govt to propose steps to ease the liquidity pressures in the market specifically for HFC’s/NBFC’s and relaxation of tax under section 43 (D) of IT Act (relating to booking of NPAs – moving from accrual to realized)
In the interim Budget presented in February 2019, the government has proposed:
- Full income tax rebate to those with net taxable income up to Rs 5 This will result in more disposable income for the common man.
- Individuals who own up to two self- occupied properties do not have to pay any notional rent tax on second home .
- The tax deducted at source (TDS) threshold for deduction of tax on rent has been proposed to increase from Rs 1,80,000 to Rs 2,40,000.
- Rollover of capital gains up to Rs 2 crore towards buying (investing) in two houses compared to one unit
- For making more homes available under affordable housing, the benefits under Section 80-IBA of the Income Tax Act is extended for one more year to the housing projects approved till March 31,
- Exemption on levy of tax — on notional rent related to unsold properties — to 2 years from the date of project completion, compared to just one year under present norms.
How significant is the role of technology in the growth of housing finance in India?
Affordable Housing Finance Companies (AHFCs) are catering to low-income, urban/semi-urban customers in unorganised sectors. The use of technology is helping AHFCs customize credit assessment models and optimise business processes, thereby reducing the time to market and helping to improve the customer experience. It has made business operations and expansion much easier at a lower cost and helps in better utilisation of the available assets and manpower/resources. Data analytics using technology is helping to identify the right customers and managing delinquencies better.